Jan 31, 2015

A common meme in economic discussions is that we need to make America more like Scandinavian countries where things are more equal and people are happier. Denmark, land of my ancestors, is often the poster child.

There is much to debate about economic policy but few seem to question what is meant by "happy." "Happy" is one of those words of which everyone knows the meaning until you try to define it. Happiness is shaded different ways in different cultures.

Michael Booth writes:

These rules set out the Law of Jante, a kind of Danish Ten Commandments, the social norms one should be aware of if one is planning a move to the north:

You shall not believe that you are someone.

You shall not believe that you are as good as we are.

You shall not believe that you are any wiser than we are.

You shall never indulge in the conceit of imagining that you are better than we are.

You shall not believe that you know more than we do.

You shall not believe that you are more important than we are.

You shall not believe that you are going to amount to anything.

You shall not laugh at us.

You shall not believe that anyone cares about you.

You shall not believe that you can teach us anything.

The truth is, Sandemose really nailed the Danes. My experience has been that Jante Law, which has become a national social manifesto of sorts, operates everywhere in Denmark on some level or another.

On the face of it, the Danes have considerably less to be happy about than most of us. Yet, when asked, they still insist that they are the happiest of us all.

What is one to make of this?

The obvious response is, “Define happiness.” If we are talking heel-kicking, cocktail-umbrella joie de vivre, then the Danes do not score highly, and I suspect not even they would take their claims that far. But if we are talking about being contented with one’s lot, then the Danes do have a more convincing case to present.

Over the years I have asked many Danes about these happiness surveys—whether they really believe that they are the global happiness champions—and I have yet to meet a single one of them who seriously believes it’s true. They appreciate the safety net of their welfare state, the way most things function well in their country, and all the free time they have, but they tend to approach the subject of their much-vaunted happiness like the victims of a practical joke waiting to discover who the perpetrator is.

On the other hand, these same Danes are often just as quick to counter any criticism of their country—of their schools, hospitals, transport, weather, taxes, politicians, uneventful landscape, and so on—with the simple and, in a sense-argument-proof riposte: “Well, if that’s true, how come we are the happiest people in the world?” (This usually accompanied by upturned palms and a tight, smug smile.) The happiness argument does come in handy sometimes, I guess.

Newspaper editor Anne Knudsen had an interesting theory relating to why the Danes continue to respond positively to happiness surveys: “In Denmark it is shameful to be unhappy,” she told me. “If you ask me how I am and I start telling you how bad I feel, then it might force you to do something about it. It might put a burden on you to help me. So, that’s one of the main reasons people say things are all right, or even ‘super.’”

Here’s another convincing theory, posited by a Danish friend of mine: “We always come top of those surveys because they ask us at the beginning of the year what our expectations are,” he said. “Then they ask us at the end of the year whether those expectations were met. And because our expectations are so extremely low at the beginning of the year, they tend to get met more easily.”

Later he writes:

With that in mind, I had a standard question that I asked most of my interviewees: “What are your fears for the future of Denmark?” One word cropped up more than any other in their responses: complacency. Many of my interviewees were worried that the Danes had it too good for too long, that they were now content to sit back in their Arne Jacobsen San armchairs and watch the plates wobble and fall. Worryingly for the Danes, the latest OECD Better Life Index of life satisfaction saw them plummet to seventh place, behind Norway and Sweden, among others. ...

... Danish society appears to have reached maturity, some would argue to a state of perfection, others to a perilous halt. The fear is that the next stage will be stagnation and decline. What happens when you develop a genuinely almost nearly perfect society in which there is nothing left to achieve, nothing to kick against, or work for?

But I had one other question I always asked, which, in its way, was even more revealing. Whenever I asked my Danish interviewees whether they could think of a better country to live in, the answer was invariably a thoughtful silence.

My point is not so much about which society is better, America or Denmark. The point is that I think "happiness," and how we report it, is different. It strikes me that Denmark is more about keeping expectations low and being content with things staying mostly as they are. That is what will make you happy. While in America, I am not "happy" with my life as it is but I am "happy" that I have an unalienable right to "life, liberty, and the pursuit of happiness," and that I will one day have a "happier" life. Happiness is found in the striving and achievement. I'm painting with broad brushes but hopefully you see my point. Consequently, comparing survey's about how "happy" people say they are is not as clarifying as advocates of the Scandinavian economics would make it seem.

Jan 22, 2014

Copenhagen (AFP) - The Nordic model, known for high taxes and its cradle-to-grave welfare system, is getting a radical makeover as nations find themselves cash-strapped.

During the post-war period, the Scandinavian economies became famous for a "softer" version of capitalism that placed more importance on social equality than other western nations, such as Britain and the United States, did.

But globalisation, economic necessity and an ideological shift to the right has led to a scaling back of the public sector.

In Sweden, visitors are sometimes surprised to learn about year-long waiting times for cancer patients, rioting in low-income suburbs and train derailments amid lagging infrastructure investment.

"The generosity of the system has declined," said Jonas Hinnfors, a professor of political science at the University of Gothenburg.

"Much of this already started changing in the 1980s and especially in the 1990s," he added. ...

Oct 03, 2013

Largely uncommented on in the US press, Europe’s long-standing
social democratic tilt has changed. During recent years, almost all
Western European nations have seen a dramatic fall in support for the
traditional Social Democratic parties, which for so long have dominated
the political landscapes. In response, the centre-left parties have
morphed, moving towards greater emphasis on the benefits of free markets
and individual responsibility. In several countries the former
communist parties now claim that they fill the role of traditional
Social Democrats. A new breed of modernized centre-left parties is
likely to replace several centre‑right governments during coming years.
The third consecutive loss for the German Social Democrats illustrates
the continuing difficulties for Europe’s labor movements to gather the
strong support that they previously almost took for granted.

Until recently oil-rich Norway has remained unique, as the only
nation where Social Democrats have resisted change to highly generous
welfare benefits. In 1999 the former Swedish social democratic minister
of business, Björn Rosengren, famously called Norway “the last Soviet
state” due to the lack of willingness to adopt market policies. But now
even Norway is shifting with the recent election of a centre‑right
government formed by Erna Solberg. Making the transition from a
full-scale welfare state to a system which consistently rewards work
more than public handouts will be a difficult one for Norway.
Hopefully, the newly elected government will draw inspiration from the
neighbor to the east.

Politicians in Norway for long admired the Swedish social system,
seeing their larger neighbor as a pioneer of Social Democratic
policies.

Recently however, particularly the left has begun to emphasize the
uniqueness of the Norwegian Welfare Model rather than the Scandinavian
Welfare Model. Swedish policies have even been used in the recent
election as deterrence by the left. It is easy to see why. The current
centre-right government in Sweden, elected in 2006 and re‑elected in
2010, has focused on a broad reform agenda. The workfare policies
introduced include: somewhat less generous benefits, tax reductions
aimed particularly at those with lower incomes, liberalizations of the
temporary employment contracts and a gate-keeping mechanism for
receiving sick and disability benefits. ...

I always think of articles like these everytime I hear American conservatives complain we are becoming more like Sweden, or liberals highlighting how we need to adopt socialism based on how happy the Scandinavians are. Both sides may want to look a little closer.

Feb 13, 2013

Politicians from both right and left could learn from the Nordic countries.

...The idea of lean Nordic government will come as a shock both to
French leftists who dream of socialist Scandinavia and to American
conservatives who fear that Barack Obama is bent on “Swedenisation”.
They are out of date. In the 1970s and 1980s the Nordics were indeed
tax-and-spend countries. Sweden’s public spending reached 67% of GDP in
1993. Astrid Lindgren, the inventor of Pippi Longstocking, was forced to
pay more than 100% of her income in taxes. But tax-and-spend did not
work: Sweden fell from being the fourth-richest country in the world in
1970 to the 14th in 1993.

Since then the Nordics have changed course—mainly to the right.
Government’s share of GDP in Sweden, which has dropped by around 18
percentage points, is lower than France’s and could soon be lower than
Britain’s. Taxes have been cut: the corporate rate is 22%, far lower
than America’s. The Nordics have focused on balancing the books. While
Mr Obama and Congress dither over entitlement reform, Sweden has
reformed its pension system (see Free exchange). Its budget deficit is 0.3% of GDP; America’s is 7%.

On public services the Nordics have been similarly pragmatic. So long
as public services work, they do not mind who provides them. Denmark
and Norway allow private firms to run public hospitals. Sweden has a
universal system of school vouchers, with private for-profit schools
competing with public schools. Denmark also has vouchers—but ones that
you can top up. When it comes to choice, Milton Friedman would be more
at home in Stockholm than in Washington, DC.

All Western politicians claim to promote transparency and technology.
The Nordics can do so with more justification than most. The
performance of all schools and hospitals is measured. Governments are
forced to operate in the harsh light of day: Sweden gives everyone
access to official records. Politicians are vilified if they get off
their bicycles and into official limousines. The home of Skype and
Spotify is also a leader in e-government: you can pay your taxes with an
SMS message.

This may sound like enhanced Thatcherism, but the Nordics also offer
something for the progressive left by proving that it is possible to
combine competitive capitalism with a large state: they employ 30% of
their workforce in the public sector, compared with an OECD average of
15%. They are stout free-traders who resist the temptation to intervene
even to protect iconic companies: Sweden let Saab go bankrupt and Volvo
is now owned by China’s Geely. But they also focus on the long term—most
obviously through Norway’s $600 billion sovereign-wealth fund—and they
look for ways to temper capitalism’s harsher effects. Denmark, for
instance, has a system of “flexicurity” that makes it easier for
employers to sack people but provides support and training for the
unemployed, and Finland organises venture-capital networks. ...

Feb 04, 2013

... Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare’s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%.

Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007-08. Sweden has also put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy.

Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly. Anders Aslund, a Swedish economist who lives in America, hopes that Sweden is pioneering “a new conservative model”; Brian Palmer, an American anthropologist who lives in Sweden, worries that it is turning into “the United States of Swedeamerica”.

There can be no doubt that Sweden’s quiet revolution has brought about a dramatic change in its economic performance. The two decades from 1970 were a period of decline: the country was demoted from being the world’s fourth-richest in 1970 to 14th-richest in 1993, when the average Swede was poorer than the average Briton or Italian. The two decades from 1990 were a period of recovery: GDP growth between 1993 and 2010 averaged 2.7% a year and productivity 2.1% a year, compared with 1.9% and 1% respectively for the main 15 EU countries. ...

... The other Nordic countries have been moving in the same direction, if more slowly. Denmark has one of the most liberal labour markets in Europe. It also allows parents to send children to private schools at public expense and make up the difference in cost with their own money. Finland is harnessing the skills of venture capitalists and angel investors to promote innovation and entrepreneurship. Oil-rich Norway is a partial exception to this pattern, but even there the government is preparing for its post-oil future.

This is not to say that the Nordics are shredding their old model. They continue to pride themselves on the generosity of their welfare states. About 30% of their labour force works in the public sector, twice the average in the Organisation for Economic Development and Co-operation, a rich-country think-tank. They continue to believe in combining open economies with public investment in human capital. But the new Nordic model begins with the individual rather than the state. It begins with fiscal responsibility rather than pump-priming: all four Nordic countries have AAA ratings and debt loads significantly below the euro-zone average. It begins with choice and competition rather than paternalism and planning. The economic-freedom index of the Fraser Institute, a Canadian think-tank, shows Sweden and Finland catching up with the United States (see chart). The leftward lurch has been reversed: rather than extending the state into the market, the Nordics are extending the market into the state. ...

"... Despite
its reputation as a leftwing utopia, Sweden is now a laboratory for
rightwing radicalism. Over the past 15 years a coalition of liberals and
conservatives has brought in for-profit free schools in education, has
sliced welfare to pay off the deficit and has privatised large parts of
the health service.

Their success is envied by the centre right
in Britain. Despite predictions of doom, Sweden's economy continues to
grow and its pro-business coalition has remained in power since 2006.
The last election was the first time since the war that a centre-right
government had been re-elected after serving a full term.

As the
state has been shrunk, the private sector has moved in. Göran Dahlgren, a
former head civil servant at the Swedish department of health and a
visiting professor at the University of Liverpool, says that "almost all
welfare services are now owned by private equity firms". ..."

"... We
have reached a point in our economy where it is becoming increasingly
clear that businesses are being measured not just for their profit, but
also for their impact. And I’m not just talking about writing a check or
funding a charity; I’m referring to business models for which community
involvement and inspirational brand building are the profit centers.
(Think Warby Parker, TOMS, and startups such as SOMA.) I recently went
to a conference where the founders of a startup posited a powerful idea:
the future of marketing is philanthropy. But I think the even bigger
idea is the future of business is morality. My grandfather saw this
early on.

At a time when the moral framework of America appears
to be fractured – or at the very least confused – businesses are in the
propitious position to espouse cultural standards that can help restore
values that our youth can use to build the next generation of positive
enterprise. In fact, whether businesses succeed in creating and
promoting positive cultures might determine whether they stay in
business at all. The future of business is morality, and the future is
now.

Whether it’s the job of the corporation or not to set the
moral tone for society, the expectation is trending towards companies
setting the right example for others to follow. With the sharp rise in
entrepreneurship, young companies have the opportunity to establish
strong cultures early on and share them with their communities. Money
must have a moral center, and from greater consciousness in business,
greater profit will follow. ..."

"New data show an increasing contribution of mental and behavioral disorders to deterioration in the health-related quality of life among teens in the U.S. and Canada over the past two decades, and increases elsewhere around the globe."

More people moved out of California in 2011 than moved in, according to the latest report from the U.S. Census Bureau, signaling that the Democrat-run state’s economic woes continue to drive residents away.

Most statisticians attribute California’s net loss of 100,000 people last year to its high cost of living, increased population density and troubling unemployment rate.

The widening middle class in Mexico is also encouraging some immigrants to remain in that country instead of moving to California.

Texas — home to lower taxes, less regulation and what the Manhattan Institute calls a “labor pool with the right skills at the right price” — is one of the most attractive destinations for companies departing from California, according to the Census Bureau. ...

"The country reported 85 executions in 2000 but only 43 in 2012, according to a new report released by the Death Penalty Information Center. Plus, far fewer people are being sentenced to death row in the first place. The year 2000 saw 224 new inmates sentenced to death, while 2012 saw only 78, according to the report."

15. Conor Friedersdorf at the Atlantic had a great piece Why 'If We Can Just Save One Child ...' Is a Bad Argument, referring to a statement President Obama made at Newtown, CT. When we deal with complex topics like gun control, we are always
talking about tradeoffs. For instance, I know how we can save more
than 30,000 lives. The were 32,367 traffic fatalities last
year. Let's set the speed limit to 5 miles per hour. Nearly all those lives would be saved. Should we do this "if we can save just
one more life"? I, like Friedersforf, am not advocating any particular
policy. I'm just pointing out the absurdity of making statements like this, as politicians often do.

"I found that the structural supports of evangelicalism are quivering as a
result of ground-shaking changes in American culture. Strategies that
served evangelicals well just 15 years ago are now self- destructive.
The more that evangelicals attempt to correct course, the more they
splinter their movement. In coming years we will see the old
evangelicalism whimper and wane."

He speaks of an Evangelical "collapse" having happened. That may be a bit premature but I think his articulation of trends is right.

AP has a story summarizing Global Trends 2030, a report put out by the U.S. Intelligence community.

... The study said that in
a best-case scenario, Americans, together with nearly two-thirds of the
world's population, will be middle class, mostly living in cities,
connected by advanced technology, protected by advanced health care and
linked by countries that work together, perhaps with the United States
and China cooperating to lead the way.

Violent
acts of terrorism will also be less frequent as the U.S. drawdown in
troops from Iraq and Afghanistan robs extremist ideologies of a rallying
cry to spur attacks. But that will likely be replaced by acts like
cyber-terrorism, wreaking havoc on an economy with a keystroke, the
study's authors say.

In countries where there are declining birth rates and an aging population like the U.S., economic growth may slow.

"Aging
countries will face an uphill battle in maintaining living standards,"
Kojm said. "So too will China, because its median age will be higher
than the U.S. by 2030."

The rising populations
of disenfranchised youth in places like Nigeria and Pakistan may lead
to conflict over water and food, with "nearly half of the world's
population ... experiencing severe water stress," the report said.
Africa and the Middle East will be most at risk, but China and India are
also vulnerable.

That instability could lead
to conflict and contribute to global economic collapse, especially if
combined with rapid climate change that could make it harder for
governments to feed global populations, the authors warn.

That's
the grimmest among the "Potential Worlds" the report sketches for 2030.
Under the heading "Stalled Engines," in the "most plausible worst-case
scenario, the risks of interstate conflict increase," the report said.
"The U.S. draws inward and globalization stalls." ...

Here is the overview from the report:

Over the next two decades, the relative power of major international
actors will shift markedly. Around 2030, after nearly a century as the
preeminent global economic power, the United States will be surpassed
by China as the world’s largest economy. With its trade in goods
expected to nearly double that of the U.S. and Europe, China’s
international economic clout will reach new heights. By 2030, India
will become the world’s most populous country and third-largest economy,
while Brazil’s economy will rank fourth in size. India and Brazil will
join China at the high table of 21st century international
politics alongside the United States, even as the relative weight of
Russia and Japan diminishes. The European economy will remain in the
top tier, but it is not clear whether Europe will be able to act with
common purpose to leverage this source of strength.

With its enhanced economic base, Beijing could rival Washington in
overall military spending, even as a slowing Chinese economy and
internal political conflict complicate China’s ability to lead
internationally. The United States will remain primus inter pares
in light of its continued advantages across the full spectrum of
national power and the legacy benefits of its leadership. It will,
however, be operating in a post-Western world in which the bulk of
global economic power is held by countries whose per capita incomes are
far below those of the traditional great powers. This reality will
leave China, India, Brazil, and other players focused on internal
development and domestic challenges, torn between their desire to be
global powers and their interest in free-riding on Western management of
the interna­tional system.

How will the rise of the rest impact the international system? The National Intelligence Council’s draft Global Trends 2030: Alternative Worlds maps out three broad scenarios:

Reverse Engines. Under this scenario, the
international system would consist of several powerful countries — but
no single state or bloc of states would have the political or economic
leverage to drive the international community toward collective action.
Such a world, characterized by a global vacuum of power, assumes that
the United States will no longer be willing or capable of sustaining the
predominant leadership role it has assumed since 1945. With no other
country able to step in to replace the U.S. as a global leader, the
resulting diver­gence of interests would lead to fragmentation and the
inability of great powers to work cooperatively to solve global issues.
Mercantilism and protectionism could lead economic globalization to go
into reverse, constraining technological breakthroughs required to
manage scarce global resources. Conflict and disorder would follow.

Great Power Convergence. An alternative scenario is
what the NIC calls a “fusion” world, in which major powers work
together to adopt and enforce a set of globally accepted rules and
norms. As U.S. predominance over the international system recedes, other
emerging powers would step in to assume greater responsibility for the
management of international affairs commensurate with their swelling
economic might. Emerging powers emerge as full stakeholders in a global
order that is transformed by power shifts but remains liberal and
pluralistic. Great power concert (perhaps enabled by democratization in
China) to meet global challenges increases the stability of the
international system even as power is diffused within it. U.S.
resilience enables it to create enduring partnerships with rising powers
to sustain the basis of liberal order. Technological advances create
new possibilities for joint management of key global challenges,
rewarding positive-sum behavior by the great powers.

Multipolar Divergence—U.S. Primacy. A third
scenario, one the NIC calls “fragmentation,” involves a multipolar
system characterized by a divergence of views among great powers that
challenges global governance. The United States would continue to
maintain disproportionate global influence and leverage that influence
to address global challenges by working through coalitions of
like-minded states. A multispeed global economy accelerates the
diffusion of power but an alternative coalition to the West does not
form, with developing giants consumed by their domestic challenges –
even as the global middle class explodes in ways that transform politics
within the rising powers. With inclusive global institutions
effectively stalemated, the United States instead turns to its old and
new allies in Europe and Asia, who would continue to see Washington as
their partner of choice in advancing the norms and rules of a liberal
order. The risk of conflict increases with the continued rise of new
powers like China and the rapid pace of technological change.

One key conclusion of the NIC study is that the future role of the
United States in the international system is a decisive variable in
determining what kind of “alternative world” will exist in 2030. The
choices U.S. leaders make – about how to marshal (and preserve) domestic
resources, how vigorously to assert U.S. military and economic
leadership overseas, and how much to invest in alliances old and new –
will be central to determining which of the above pathways the
international system will follow over the coming 20 years. To a certain
extent, the answer to the question of how the “rise of the rest”
impacts the U.S.-led international system is that it is not up to them…
so much as it is up to us.

Oct 15, 2012

Ever hear something like this? "Obama is going to make
America a socialist country like those Europeans." or "We need a more
just economic system like they have in Europe." Whenever discussions of
economic systems arise in the U. S., somehow we always seem to be doing
comparisons to “Europe.” I write Europe in quotes because there is no European
economic system. There are nearly four dozen countries in Europe. The economies
of the United Kingdom, Russia, Greece, Germany, France, and Sweden vary widely.
But when I hear Americans get more specific I typically hear them reference the
Nordic economic model (Denmark, Finland, Iceland, Norway, and Sweden) with
Sweden being the poster child.

I don’t consider comparative economics my strong suit but I
do try to read up on different economic systems. As I listen to both left and
right employ Sweden in their debates, I do wonder if pundits on either side
have really looked at what has happened in Sweden in the past fifty years.

Recently I came across and article, A Swedish Lesson For
Ed Balls, written by conservative Swedish economist Anders Aslund. I don’t
know much about him. From what I do know, I’m not sure I would entirely agree
with him on economic issues, but I think he does a good job of capturing the
shifts in Swedish policy over recent decades. I think most Americans, left and
right, are about twenty years behind the curve in the perceptions of the Nordic
economic model, with Sweden of the 1970s and 1980s frozen in their minds as our present reality. Aslund
begins his article in the Salisbury Review:

To Brits, Sweden with its tightly regulated
social welfare state is often a byword for socialism. But in the last two
decades the country has been transformed. today it offers a flexible and
dynamic European model with ever falling public expenditure, lower taxes,
economic growth and budget surpluses.

After many years of
absence from the Swedish debate, I attended a conference on the Swedish economy
in the southern city of Malmö in May, organized by Swedbank. The 180 speakers
represented the full range of Swedish views, which have moved amazingly far to
the free-market right, not least social democrats and trade union leaders. Key
values are competition, openness and efficiency, while social and environmental
values remain. The idea is not to abolish social welfare but to make it more
efficient through competition among private providers. A new consensus has
emerged on having a social welfare society rather than a social welfare state. ...

Read the whole piece. It may challenge your perceptions. If
you are Swedish are have intimate knowledge of the Swedish system, I’d be
interested in hearing your take on Aslund’s claims.

Sep 20, 2012

The Nordic nations, and Sweden in particular, are seen by many as the
proof that it is possible to combine innovative and entrepreneurial
economies with high tax rates. It is often argued that nations such as
the US can gain the attractive social features of Denmark, Sweden,
Norway and Finland — such as low crime rates, high life expectancy,
and a high degree of social cohesion — simply by expanding the
welfare state. An in depth analysis, however, shows that this line of
reasoning is flawed. ...

... Taxes still remain high in the Nordic nations, particularly in Denmark
and Sweden. The high tax pressures create high costs for the societies. ...

... So how come the Nordic nations are so prosperous? A key reason is
that they, particularly since the 1980s, have compensated for high tax
regimes by implementing a range of market reforms. These reforms range
from Flexicurity — a combination of strategies to provide flexibility
for employers and security for workers — in the Danish labor market, to
partial abolition of rent-control in Finland, to school vouchers and
partial privatization of the pension system in Sweden. Indeed, the
Nordic nations have risen sharply in both the Heritage/WSJ and the
Frasier Institute indexes of economic freedom over the years.

It is also important to realize exactly why the Nordic nations have
been able to implement large welfare states, and what the benefits have
been. The cultural and economic systems in the Protestant Nordic nations
have historically given rise to very strong norms related to work and
responsibility. Coupled with uniquely homogeneous societies, these norms
made it possible to implement larger welfare states in the Nordic
nations than those in other industrialized countries. Since the norms
relating to work and responsibility were so firmly rooted, Nordic
citizens were not as likely as other Europeans or Americans to try to
avoid taxes or misuse generous public support systems. Also, the
"one-solution-fits-all" systems of the welfare state are typically less
disruptive in a strongly homogeneous social environment, since most of
the population has similar norms, preferences, and income levels.

However, with time the norms have evolved. In the World Value Survey
of 1981-84, almost 82 percent of Swedes responded that "claiming
government benefits to which you are not entitled is never justifiable",
but in the survey of 1999-2004, only 55 percent held the same belief.
It is no coincidence that much of the public policy debate in Norway,
Sweden, Denmark and Finland has focused on curbing overutilization of
welfare systems.

Many of the favorable social outcomes in the Nordic nations relate to
our unique culture, and the policies cannot simply be copied. ...

Sep 19, 2012

Here's a finding that would have made for great occupy sign last
year: American income inequality may be more severe today than it was
way back in 1774 -- even if you factor in slavery.

That stat's not
actually as crazy (or demoralizing) as it sounds, but it might upend
some of the old wisdom about our country's economic heritage. The
conclusion comes to us from an newly updated study by
professors Peter Lindert of the University of California - Davis and
Jeffrey Williamson of Harvard. Scraping together data from an array of
historical resources, the duo have written a fascinating exploration of
early American incomes, arguing that, on the eve of the Revolutionary
War, wealth was distributed more evenly across the 13 colonies than
anywhere else in the world that we have record of.

Suffice to say, times have changed. ...

... We are much richer nation, and much better
off today, than 240 years ago. In the 1770s, America was a heavily
agrarian country of yeoman farmers, merchants, and tradesmen, with an
economy that accounted to just a few billion dollars in present values.
Like India or Russia today,
both of which technically enjoy more income equality than the United
States, early Americans were relatively poor compared to us. They were
just relatively poor together. The first wave of industrialization in
the 19th century increased living standards, but also offered bigger
rewards to factory owners than their workers. That pattern neatly fits
our classic understanding of what's supposed to happen when economies
move from farming to manufacturing. And by now, we've gone through
several epic rounds of economic upheaval that have left us with a vast
gulf between the rich and the rest, as well as a welfare state that
tries to mitigate some of the side effects of that difference.

So,
awful as it might sound, the fact that the United States is less
economically egalitarian than during its rural, slave-society ancestors
is not inherently a reason to fret. ...

Sep 14, 2012

(Reuters) - The European Union will impose a limit on the use of crop-based biofuels over fears they are less climate-friendly than initially thought and compete with food production, draft EU legislation seen by Reuters showed.

The draft rules, which will need the approval of EU governments and lawmakers, represent a major shift in Europe's much-criticized biofuel policy and a tacit admission by policymakers that the EU's 2020 biofuel target was flawed from the outset.

The plans also include a promise to end all public subsidies for crop-based biofuels after the current legislation expires in 2020, effectively ensuring the decline of a European sector now estimated to be worth 17 billion euros ($21.7 billion) a year. ...

Sep 12, 2012

Nima Sanandaji has written an interesting paper about Sweden.
It largely points to the same historical facts that I have mentioned in
my previous writings, namely that Sweden during its most free market
oriented era, from 1870 to 1950, had the highest rate of per capita
economic growth in the world. After massive tax and spending increases
during the 1950s and 1960s, Sweden stopped outperforming other
countries, and after a dramatic leftist shift in economic policies
implemented by Socialist Olof Palme
after he became prime minister in 1969, Sweden started to seriously
lagg other countries. However, free market reforms implemented in the
1990s, and in recent years, have enabled Sweden to once again outperform
other Western countries in growth.

He also discusses possible cultural factors, and also points out that
Sweden in 1920 had a relatively low level of economic inequality,
despite the fact that government spending and taxation at that time was
only 10% of GDP.

Scandinavian societies have developed a unique culture with a strong work ethic and strong ethical attitudes regarding the claiming of welfare benefits. There are also high levels of trust and social cohesion. This social capital, which was built up before the advent of the modern welfare state, has played an important role in the success of Scandinavian countries.

For many decades, this pre-existing culture, allowed countries such as Sweden to have extensive welfare systems without the social difficulties, rise in worklessness and other effects that many would have predicted. Scandinavian countries have also reaped the rewards of relatively free market policies in some areas of economic life to reach impressive levels of wealth creation.

To characterise the Swedish model either as a social democratic utopia or a failed socialist experiment is a mistake. Sweden is a successful country in terms of having a low poverty rate and long life expectancy. However, these factors have much to do with non-government facets of Swedish society that pre-existed the welfare state.

As Milton Friedman has previously noted, the millions of US residents of Swedish descent also display low rates of poverty. They combine this with a living standard that is significantly better compared with Swedes living in Sweden. The transformation of Sweden from an impoverished agrarian society to a modern industrialised nation is a rarely mentioned, but quite significant, example of the role of free markets in lifting a country out of poverty and into prosperity. Low levels of inequality and low levels of government spending characterised this period of economic transformation. The golden age of Swedish entrepreneurship - when one successful firm after another was founded in this small country and gained international renown – occurred at a time when taxes and the scope of government were quite limited.

Sweden shifted to radical social democratic policies in the 1960s and 1970s, with a gradual reversal beginning in the mid 1980s. The social democratic period was not successful, as it led to much lower entrepreneurship, the crowding out of private sector job production and an erosion of previously strong work and benefit norms. The move towards high taxes, relatively generous government benefits and a regulated labour market preceded a situation in which Swedish society has had difficulty integrating even highly-educated immigrants, and where a fifth of the population of working age are supported by various forms of government welfare payments.

It is also important to remember that Sweden, like other Scandinavian nations, has compensated for policies of high taxes and welfare benefits by improving economic liberty in other fields. Some reforms, such as the partial privatisation of the mandatory pensions system and voucher systems in schools and healthcare surpass reforms in most developed nations. Since these reforms, and the reduction in taxes from the very-high levels of the 1970s to mid 1980s, Swedish relative economic performance has improved.

Swedish society is not necessarily moving away from the idea of a welfare state, but continual reforms are being implemented that increase economic liberty and incentives for work within the scope of the welfare system. Such trends are also visible in Finland and Denmark, with only oil-rich Norway being an exception.

Apr 17, 2012

The European country where Skype was born made a conscious decision to embrace the web after shaking off Soviet shackles.

... In a tiny (population: 1.4 million) and newly independent country like Estonia, politicians realised computers could help quickly compensate for both a minuscule workforce and a chronic lack of physical infrastructure.

Seventeen years on, the internet has done more than just help. It is now tightly entwined with Estonia's identity. "For other countries, the internet is just another service, like tap water, or clean streets," said Linnar Viik, a lecturer at the Estonian IT College, a government adviser and a man almost synonymous in Estonia with the rise of the web.

"But for young Estonians, the internet is a manifestation of something more than a service – it's a symbol of democracy and freedom."

To see why, you just have to go outside. Free Wi-Fi is everywhere, and has been for a decade.

Viik says you could walk 100 miles – from the pastel-coloured turrets here in medieval Tallinn to the university spires of Tartu – and never lose internet connection.

"We realised that if the government was going to use the internet, the internet had to be available to everybody," Viik said. "So we built a huge network of public internet access points for people who couldn't afford them at home."

The country took a similar approach to education. By 1997, thanks to a campaign led in part by Ilves, a staggering 97% of Estonian schools already had internet. Now 42 Estonian services are now managed mainly through the internet. Last year, 94% of tax returns were made online, usually within five minutes. You can vote on your laptop (at the last election, Ilves did it from Macedonia) and sign legal documents on a smartphone. Cabinet meetings have been paperless since 2000.

Doctors only issue prescriptions electronically, while in the main cities you can pay by text for bus tickets, parking, and – in some cases – a pint of beer. Not bad for country where, two decades ago, half the population had no phone line. ...

... To a British audience, the ID card will have a whiff of Big Brother. But many Estonians argue the opposite: that it allows them to keep tabs on the state, rather than the other way round.

"You'd think, given our history, we'd have a problem with it," said Ilves, in an oblique reference to the days when the KGB had an office down a cobbled street in central Tallinn.

"But I feel much more secure with a digital ID. If anyone goes into my files, they're flagged. Whereas if my files – which would exist anyway – were made of paper, no one would know who was looking at them."

Every Estonian can see who has visited their data, and they can challenge any suspicious behaviour. In one famous case, a policewoman was caught accessing information about her boyfriend. ...

The story mentions Mart Laar, the first Estonian Prime Minister after Russian occupation. He was 32 at the time. I had the privilege of having dinner with him a few years ago at an Acton Institute event. What an amazing story. Then I had an opportunity to see a screening of the documentary The Singing Revolution with the director present. If you have never seen the documentary you need to get it on your list. One of the most amazing stories of hope and reconciliation in the face incredible threats. I hope to visit Estonia someday. Here is a trailer for the documentary.

Mar 02, 2012

... Greece stands out among European Union countries as having the most stunted firms. Around a third of Greek manufacturers are “micro” firms with fewer than ten workers, compared with 4.3% of firms in Germany (see left-hand chart). But the small-firm problem also afflicts the other troubled economies at the euro zone’s southern periphery. Spain lacks biggish manufacturers; Italy’s small-firm bias derives in part from a reverence for family firms. Only 19% of Portuguese manufacturers have 250 or more workers, compared with 55% of industrial firms in Germany. “The incredible shrinking Portuguese firm” is the title of a research paper* by three economists at Carnegie Mellon University, which shows that Portugal had more small firms and fewer big ones in 2009 than it had in the 1980s. The authors find the trend has been towards larger firms in America, as well as in Denmark, a country of comparable size to Portugal.

A bias to small firms is costly. The productivity of European firms with fewer than 20 workers is on average little more than half that of firms with 250 or more workers (see right-hand chart). The deeper roots of the euro-zone crisis lie with the loss of competitiveness in the region’s trouble spots. This problem owes more to dismal productivity growth in the past decade than to rapid wage inflation. If the best small firms were able to grow bigger, Greece and the rest might solve their competitiveness problems without having to cut wages or leave the euro.

The periphery’s productivity malaise is the result of the rigid rules that govern jobs and goods markets. In theory the key to prosperity is the amount of physical capital and skilled workers in an economy, and how they are combined. But the quality of companies will vary so it matters greatly where—as well as how well and how much—capital and skills are deployed. If restrictive rules mean that resources are trapped in inefficient firms, it leaves the best companies starved of them. The result is sluggish productivity. The Carnegie Mellon economists blame Portugal’s shrinking firms on its employment laws, which are among the strictest in the OECD (though becoming more forgiving) and act as a tax on firm size, because small firms are sheltered from them. ...

Feb 29, 2012

THE past four years have seen an economic crisis coincide with a food-price spike. That must surely have boosted the number of the world’s poor (especially since food inflation hits the poor hardest)—right? Wrong. New estimates of the numbers of the world’s poor by the World Bank’s Development Research Group show that for the first time ever, poverty—defined as the number and share of people living below $1.25 a day (at 2005 prices)—fell in every region of the world in 2005-08. Half the long-term decline is attributable to China, which has taken 660m people out of poverty since the early 1980s. But the main contribution to the recent turnaround is Africa. Its poverty headcount rose at every three-year interval between 1981 and 2005, the only continent where this happened. But in 2008, it fell by 12m, or five percentage points to 47%—the first time less than half of Africans have been below the poverty line. The bank also has partial estimates for 2010. These show global poverty that year was half its 1990 level, implying the long-term rate of poverty reduction—slightly over one percentage point a year—continued unabated in 2008-10, despite the dual crisis.

Feb 06, 2012

Twenty years ago, communist countries began their shift towards capitalism. What do we know now that we didn’t know then? Harvard's Andrei Shleifer, the Russian-born, American-trained economist, provides his answers and their relevance for contemporary policymakers.

First, in all countries in Eastern Europe and the former Soviet Union, economic activity shrunk at the beginning of transition, in some very sharply. ...

Second, the decline was not permanent. ... So lesson learned: have faith – capitalism really does work.

Third, the declines in output nowhere led to populist revolts – as many economists had feared. ... Instead of populism, politics in many countries came to be dominated by new economic elites, the so-called oligarchs, who combined wealth with substantial political influence. ... But the lesson is clear: a reformer should fear not populism but capture of politics by the new elites.

Fourth, economists and reformers overstated both their ability to sequence reforms, and the importance of particular tactical choices, eg, in privatisation. ...

Fifth, economists have greatly exaggerated the benefits of incentives by themselves, without changes in people. Economic theory of socialism has put way too much weight on incentives, and way too little on human capital. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives. ...

Sixth, it is important not to overestimate the long-run consequences of macroeconomic crises and even debt defaults. ...

Seventh, it is much easier to forecast economic than political evolution. Although nearly all transition countries have eventually converged to some form of capitalism, there has been a broader range of political experiences, from full democracies, to primitive dictatorships, to just about everything in between. ... Lesson learned: middle-income countries eventually slouch toward democracy, but not nearly in as direct or consistent a way as they move toward capitalism.

Dec 12, 2011

THE gap between rich and poor has grown ever wider in wealthy countries over the past three decades. A new report by the OECD has reams of data on this phenomenon and is well worth looking at. The Gini coefficient, a measure of inequality in which zero corresponds to everyone having the same income and one means the richest person has all the income, increased by almost 10% from 0.29 in 1985 to 0.32 in 2008, for working-age people in OECD countries. The trend is caused by earnings: the pay of the richest 10% of employees has increased at a far greater rate than that of the poorest 10% of employees. Within the upper echelons, the top 1% have reaped the greatest gains. Technology has disproportionately benefited high-earning workers, who also spend far longer at work than do low-earners. High earners marry other high earners. And governments are doing less to redistribute wealth than they have done in the past. So far, so familiar. But the report also argues that globalisation is not a significant cause of inequality, and that one of the many reasons for the rise in income inequality is that more people are in work now (or at least they were before the financial crisis hit) compared with the 1970s.

Sep 30, 2011

... But two things distinguished Sweden's welfare state from the very beginning. First, Sweden's progressives cleverly marketed their ideas as a way of realizing what they called a folkhemmet (people's home). The emphasis was upon realizing a once-overwhelmingly peasant society's traditional values in a context of industrialization. This helped the Social Democrat governments that ruled Sweden between 1932 and 1976 avoid being labeled as soft-Marxists in a country deeply wary of an expansionist Soviet Union.

The second distinguishing feature was Sweden's vision of state-provided social protection as a right. This led to successive governments insisting upon universal coverage and the costs being covered by general taxation.

It took several decades, but the relentless logic of these commitments eventually eroded the Swedish economy's competitiveness. The situation was worsened by the decision of governments in the 1970s to hasten Sweden's long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and -- of course -- increasing taxation to punitive levels to pay for it all.

Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that "In 1970, Sweden had the world's fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages in Sweden increased by only one percentage point." So much for helping "the workers."

Facing severe economic stagnation, Sweden began implementing several rather un-social democratic measures in the early 1990s. This included curtaining its public sector deficit and reducing marginal tax-rates and levels of state ownership. Another change involved allowing private retirement schemes, a development that was accompanied by the state contributing less to pensions.

These reforms, however, proved insufficient. In the early 2000s, according to James Bartholomew, author of the best-selling The Welfare State We're In (2006), more than one in five Swedes of working-age was receiving some type of benefit. Over 20 percent of the same demographic of Swedes was effectively working "off-the-books" or less than they preferred. Sweden's tax structure even made it financially advantageous for many to stay on the dole instead of getting a job.

But with a non-Social Democrat coalition government's election in 2006, Sweden's reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.

To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished -- yes, that's right, abolished -- inheritance taxes.

But liberalization wasn't limited to taxation. Sweden's new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world's most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.

So what were the effects of all these changes? The story is to be found in the numbers. Unemployment levels fell dramatically from the 10 percent figure of the mid-1990s. Budget-wise, Sweden started running surpluses instead of deficits. The country's gross public debt declined from a 1994 figure of 78 percent to 35 percent in 2010. Sweden also weathered the Great Recession far better than most other EU states. Sweden's 2010 growth-rate was 5.5 percent. By comparison, America's was 2.7 percent. ...

May 24, 2011

KALININGRAD, RUSSIA — On a balmy Saturday afternoon, there was a real sense of anticipation among the hundreds of students sitting in a lecture theater at Immanuel Kant State University, awaiting a rare chance to quiz the foreign ministers of Germany, Poland and Russia — Guido Westerwelle, Radek Sikorski and Sergey V. Lavrov.

Kaliningrad was once called Königsberg, the first capital of Prussia and birthplace of Kant. In 1945, it was conquered and annexed by the Soviets. Since the end of the Cold War and the independence of Lithuania from the Soviet Union, Kaliningrad has been an exclave of Russia. It is 320 kilometers, or 200 miles, from Russia proper and sandwiched between Lithuania and Poland, both E.U. and NATO members.

Here, the students witnessed the establishment of a German-Polish-Russian forum designed to encourage a rapprochement among three countries with fundamentally different historical narratives of World War II.

Any such process would ultimately mean Russia confronting its past, particularly Stalinist crimes and the gulags, and reassessing its role as victim and victor during and after World War II. It would also mean Russia embracing the European idea of dealing with memory and the past, now so much a part of the European identity.

“Being European is about being aware of what we did,” said Ivan Krastev, historian and chairman of the Center for Liberal Strategies in Sofia. ...

May 11, 2011

... But on a stoop right next to our cheerfully oblivious children sat our tour guide, Edoardo Zaffuto, chatting away loudly about how “the Mafia has robbed Sicily of its dignity.” To underscore that point, across Mr. Zaffuto’s chest was a T-shirt reading “Addiopizzo!” The catchphrase means “Goodbye, protection money” and is the name taken by an organization determined to use tourism as a means to return some of that stolen dignity to Sicily.

Don’t you ever get nervous, I asked, nodding at the glarers. “Never,” Mr. Zaffuto said. “There are too many of us.”

“Us” are fellow Addiopizzo members, part of a social movement that, according to Mr. Zaffuto, now covers more than 700 businesses, including a travel agency whose mission is to guide tourists toward establishments that refuse to pay the Mafia’s protection money.

Given the duration and reach of the Mafia’s influence on Italy (and on Sicily, in particular, where it is said to have started), trying to quantify the group’s economic impact is an inexact science. That said, a 2007 study by SOS Impresa, the anti-rackets office of the retailers’ association, found that 70 percent of Sicilian retailers pay the Cosa Nostra protection money. The average payment is about 880 euros (about $1,275) a month, according to the anti-Mafia research foundation Fondazione Rocco Chinnici.

And if they didn’t pay?

“Arson, vandalism, harassment,” said Mr. Zaffuto. By whom? “The Mafia,” he said with a laugh, finishing his ice cream.

In July 2004, a group of Mr. Zaffuto’s friends wanted to open a bar without paying protection money (or pizzo, in Italian). Outraged that this seemed nearly impossible, they plastered Palermo’s walls and phone booths with black-and-white stickers and fliers reading, in Italian: “An entire people that pays the pizzo is an entire people without dignity.” The group then formed Addiopizzo, enlisting businesses that refused to pay, and showing up en masse at Mafia trials to cheer police cleanup efforts. ...

Mar 14, 2011

With exports from low-wage countries like China on the rise, the question of what this means for trade and jobs in developed countries is a furious war of words. This column, using firm-level data for France between 1995 and 2005, shows that competition from low-wage markets actually boosts the sales of high-quality goods – but it concedes the benefits are not universal. ...

Consequences

Our results show that, over 1995-2005, a period characterised by the surge of low-wage countries in international markets,

France has specialised in the production of higher quality goods.

This specialisation has had a positive impact on France’s export performances, dampening the fall of its market share in foreign markets.

Beyond the effect on aggregate trade, such adjustments in specialisation patterns are likely to have important macroeconomic consequences. Hausmann et al. (2007), for example, discuss how countries that specialise in higher quality goods can enjoy better growth performances in the long run. However, changes in the structure of production can also have important transitory effects. In particular, if the relative content of production in skilled and unskilled labour is not the same depending on the produced quality, a reallocation of production in favour of high quality goods is likely to modify labour-market equilibria (see Verhoogen 2008).

This may be part of the story when it comes to explaining the rising wage premium and employment inequalities between skilled and unskilled workers observed over the last 20 years in most developed countries.

Jan 31, 2011

Religion declines with economic development. In a previous post that rattled around the Internet, I presented a scholarly explanation for this pattern: people who feel secure in this world have less interest in another one.

The basic idea is that wealth allows people to feel more secure in the sense that they are confident of having their basic needs met and expect to lead a long healthy life. In such environments, there is less of a market for religion, the primary function of which is to help people cope with stress and uncertainty.

Some readers of the previous post pointed out that the U.S. is something of an anomaly because this is a wealthy country in which religion prospers. Perhaps taking the view that one swallow makes a summer, the commentators concluded that the survival of religion here invalidates the security hypothesis. I do not agree. ...

...In my own (as yet unpublished) research on this question, I have looked at several other facets of the security hypothesis that go some way toward explaining why Americans remain more religious than their European cousins.

The conclusions are not very flattering so far as the quality of life in this country is concerned. In her recent book, Third World America, Arianna Huffington made the case that this country is regressing to the inequitable conditions more typically found in a far poorer country.

Despite having great wealth, the riches are unevenly distributed. Such income inequality is typical of developing countries and it has worsened considerably in recent decades. Moreover, we lack the well-developed welfare state found in Europe that serves to redistribute wealth and provides a safety net for the poor. ...

... The bottom line, then, is that Americans feel far less secure economically, and in relation to their health and well-being, than would be expected given the overall wealth of the country in terms of GDP per capita. This existential insecurity provides a fertile ground for religion. Scholars might appeal to historical factors such as the Puritan founders but history counts for little in these matters given that virtually every country has a devout past. ...

Unlike most European societies, the USA has had a "free market" economy for religion. Religions and denominati­ons, and their institutio­ns, must compete for adherents since none of them have monopolist­ic power or the coercive power of the state. That creates a mix of vibrant adaptive competitor­s. This is different from the monopolist­ic and subsidized religious environmen­t in Europe. As a nation with monopolist­ic religion becomes wealthier, I think it likely that society will become more secularize­d. Not so where there is open competitio­n.

Dec 09, 2010

America, the euro zone and the emerging world are heading in different directions.

THIS year has turned out to be a surprisingly good one for the world economy. Global output has probably risen by close to 5%, well above its trend rate and a lot faster than forecasters were expecting 12 months ago. Most of the dangers that frightened financial markets during the year have failed to materialise. China’s economy has not suffered a hard landing. America’s mid-year slowdown did not become a double-dip recession. Granted, the troubles of the euro area’s peripheral economies have proved all too real. Yet the euro zone as a whole has grown at a decent rate for an ageing continent, thanks to oomph from Germany, the fastest-growing big rich economy in 2010.

The question now is whether 2011 will follow the same pattern. Many people seem to think so. Consumer and business confidence is rising in most parts of the world; global manufacturing is accelerating; and financial markets are buoyant. The MSCI index of global share prices has climbed by 20% since early July. Investors today are shrugging off news far more ominous than that which rattled them earlier this year, from the soaring debt yields in the euro zone’s periphery to news of rising inflation in China.

Earlier this year investors were too pessimistic. Now their breezy confidence seems misplaced. To oversimplify a little, the performance of the world economy in 2011 depends on what happens in three places: the big emerging markets, the euro area and America. (Yes, Japan is still an economic heavyweight, but it is less likely to yield surprises.) These big three are heading in very different directions, with very different growth prospects and contradictory policy choices. Some of this divergence is inevitable: even to the casual observer, India’s economy has always been rather different from America’s. But new splits are opening up, especially in the rich world, and with them come ever more chances for friction. ...

Sep 22, 2010

Does culture affect long-run growth? This column argues that countries with a more individualist culture have enjoyed higher long-run growth than countries with a more collectivist culture. Individualist culture attaches social status rewards to personal achievements and thus provides not only monetary incentives for innovation but also social status rewards. ...

Aug 05, 2010

Catholicism is hollowing out in its traditional European strongholds. But signs of intriguing new life are springing up at its periphery.

... Since the start of the year Abbé Francis has been at war with the region’s bishop—in church terms, a liberal—who has been trying to close the parish and move him to other duties. Uproar ensued in January when the bishop came to mass and tried to give the priest his marching orders. Most villagers followed Abbé Francis as he strode off to another church and celebrated in the old-fashioned way. He has made two appeals to Rome, both rejected on technicalities; a third is pending.

To Father Francis’s admirers Thiberville is a pinpoint of light against a sombre background: the near-collapse of Catholicism in some of its heartlands. In the diocese of Evreux, Christianity has been part of the fabric of life for 15 centuries. Of its 600,000 inhabitants, about 400,000 might call themselves, at least loosely, Catholic. But the number of priests under the age of 70 is a mere 39, and only seven of those are under 40. That is just a bit worse than average in a country that, as recently as the 1950s, boasted 40,000 active priests; in a few years, the number under 65 will be a tenth of that. This suggests a body that is not so much shrinking as dying.

On closer inspection French Catholicism is not dead, but it is splintering to the point where the centre barely holds. The brightest flickers are on the fringes: individuals like Abbé Pierre, founder of the Emmaus movement for the homeless; “charismatics” whose style draws on Pentecostalism, and traditionalists who love Latin rites and processions. Meanwhile, the church’s relatively liberal mainstream is almost in free fall. As conservatives like Abbé Francis see it, it is largely the liberals’ own fault: “They keep selling and closing properties, while we [traditionalists] are busy building and restoring.” ...

... But in many European places where Catholicism remained all-powerful until say, 1960, the church is losing whatever remains of its grip on society at an accelerating pace. The drop in active adherence to, and knowledge of, Christianity is a long-running and gentle trend; but the hollowing out of church structures—parishes, monasteries, schools, universities, charities—is more dramatic. That is the backdrop against which the paedophile scandal, now raging across Europe after its explosion in the United States, has to be understood. The church’s fading institutional power makes it (mercifully) easier for people who were abused by clerics to speak out; and as horrors are laid bare, the church, in many people’s eyes, grows even weaker. ...

Jul 26, 2010

LONDON — Perhaps the only consistent thing about Britain’s socialized health care system is that it is in a perpetual state of flux, its structure constantly changing as governments search for the elusive formula that will deliver the best care for the cheapest price while costs and demand escalate.

Even as the new coalition government said it would make enormous cuts in the public sector, it initially promised to leave health care alone. But in one of its most surprising moves so far, it has done the opposite, proposing what would be the most radical reorganization of the National Health Service, as the system is called, since its inception in 1948.

Practical details of the plan are still sketchy. But its aim is clear: to shift control of England’s $160 billion annual health budget from a centralized bureaucracy to doctors at the local level. Under the plan, $100 billion to $125 billion a year would be meted out to general practitioners, who would use the money to buy services from hospitals and other health care providers.

The plan would also shrink the bureaucratic apparatus, in keeping with the government’s goal to effect $30 billion in “efficiency savings” in the health budget by 2014 and to reduce administrative costs by 45 percent. Tens of thousands of jobs would be lost because layers of bureaucracy would be abolished. ...

Outgoing PM Jan Peter Balkenende resigned his seat after his Christian Democrats suffered a crushing defeat, trailing in fourth place with 21 seats.

Mr Balkenende also stepped down as leader of the party, which plummeted to a historic low losing 20 seats.

The AFP news agency reported Mr Balkenende as saying he took "political responsibility" for the result.

Shift right

As results emerged it became clear that Dutch voters had shifted to the right in Wednesday's national elections, dominated by concerns over the rising national debt and discontent over immigration. ...

So now the Tea Party has spread to the Netherlands. Who knew! Just like in America, it is probably just a racist response to their first black prime minister. Oh ... wait ... they don't have a black prime minster? ;-)

May 18, 2010

Financial wizards at J.P. Morgan have used 'Quant Models' to determine that serial underperformers England will win World Cup 2010, taking out Spain in the final match. Could it be?

Move over, Brazil.

Step aside, Italy.

England will win World Cup 2010.

IN PICTURES: Ready for the World Cup

Stop snickering, you. The financial wizards at J.P. Morgan have used "Quant Models" to determine that the Three Lions will sink their teeth into Spain in the World Cup final. The world will hear them roar.

J.P. Morgan describes Quant Models as "mathematical methods built to efficiently screen and identify stocks" and says it has applied that method to soccer data such as FIFA rankings and historical match scores to come up with its result.

Still, England?

Although every Englishman seems to fancy the national team's chances in every World Cup, few outside Old Blighty see them as favorites when the cup rolls around every four years. ...

Keep in mind this prediction was brought to you be the same people who presided over the 2008 finance collapse. :-)

Mar 10, 2010

In today’s Acton Commentary, I review a new statement titled Choosing the Common Good (download it here) from the Catholic Bishops’ Conference of England and Wales. In the introductory video linked above, The Most Rev. Vincent Nichols, Archbishop of Westminster, introduces Choosing the Common Good and discusses the key themes in Catholic Social Teaching “as a contribution to the wide-ranging debate about the values and vision that underpin our society.”

Here is the text of my commentary: ...

... Choosing the Common Good’s strength is that it speaks to what the Church is best qualified to discuss when it comes to social and political questions: the moral-cultural dimension. In this regard, three dominant themes pervade this concise text.

The first is the limits of politics. “Have we allowed ourselves,” the bishops write, “to be seduced by the myth that social problems are for the government to deal with?. No government can solve every problem, nor make us more generous or responsive to need.”

That’s a marked departure from much of the post-war British political consensus about government’s role that not even Margaret Thatcher could overturn.

A second theme is the centrality of truly free associations (as opposed to NGOs). “Local institutions,” the bishops state, “expressing good citizenship and neighbourliness, which are not beholden to government, form a vital part of civil society.” These networks of solidarity embody valuable social capital, the vitality of which “requires our society to rediscover the centrality of personal responsibility and the gift of service to others.”

This linkage between personal responsibility and concern for our neighbor (rather than delegating it to the state) underpins the bishops’ emphasis on trust. Trust’s significance as a force for genuine social cohesion is underscored by social and economic research. According to the bishops, the undermining of trust as a living force in much of contemporary Britain has proved costly, including in the economy.

While stressing that the causes of the financial crisis are complex, the bishops argue that a decline of trust helped facilitate the financial sector’s meltdown. It follows “that new and sweeping regulation [will not] of itself solve these deep-seated problem.” “[S]ystematic flaws in the economy,” they add, “cannot be repaired unless it is recognized that they stem from, and contribute to, equivalent flaws in our wider society.”

Yes, many irresponsible choices were made by people working in the financial industry. But, as the bishops observe, there was plenty of irresponsible behavior on the part of others – including politicians and ordinary folk – that contributed to the meltdown. Regulation in itself cannot solve this problem: indeed it can significantly worsen matters.

Then there is the theme of the indispensability of virtue for any decent society. Here the bishops really hit their stride. “In place of virtue”, they insist, “we have seen an expansion of regulation. A society that is held together just by compliance to rules is inherently fragile, open to further abuses which will be met by a further expansion of regulation.”

The bishops then detail how the classical virtues of prudence, justice, courage, and temperance have real and practical consequences for economic and social life. That’s an important argument which many on the British left and right presently seem incapable of articulating. It also makes a welcome contrast to those – including some Catholics – who invariably reduce morality to whatever happens to be the latest fashionable lefty cause. ...

Nov 10, 2009

AS THE piano strikes up, the congregation sways, fists in the air, murmurs of hallelujah punctuating the music. Pastor Franck Lefillatre, bathed in the spotlight on his podium, intones into a microphone.

''Let out the words that are in your heart,'' he urges. His whispers crescendo to booming rhetoric. Behind him, emblazoned in gold lettering, are the words: ''Jesus Christ: the same yesterday, today, eternally.''

As evangelical services go, this gathering on a rainy Sunday is nothing unusual. In countless churches across the US and many countries, it would be a staple means of Christian worship.

But this is not the American Bible Belt. It is the Church of Paris-Bastille, and this congregation is one of a growing number of evangelical communities spreading through France and prospering in spite of its secular - and Catholic - traditions.

From a postwar population of about 50,000, French evangelicals are now estimated to number 450,000 to 500,000. According to the Evangelical Federation of France, the number of churches has risen from 800 in 1970 to more than 2200 today. ...

Nov 09, 2009

Twenty years ago today the Berlin Wall burst open. I count the event as one of the biggest events that has happened during my lifetime ... bigger than 9/11. It symbolized the collapse of the Soviet Empire and it happened in such a surreal way it is still hard to believe.

Below are two videos I found at YouTube. The first is a moving tribute to the wall itself. The second is about the moment folks actually burst through the wall. What videos or stories have you seen that mark the event?

Nov 05, 2009

Over the past 20 years economic freedom has outpaced political liberty. Neither should be taken for granted

“OF ALL places it was in divided Berlin in divided Germany in divided Europe that the cold war erupted into an east-west street party,” this newspaper observed 20 years ago. Even to those who had been confident of the eventual triumph of the West, the fall of the Berlin Wall was surprisingly accidental. When 200,000 East Germans took advantage of Hungary’s decision to open its borders and fled to the West, their communist government decided to modify the travel restrictions that imprisoned them. Asked about the timing, the unbriefed propaganda minister mumbled: “As far as I know, effective immediately.” When that was reported on television, the Berliners were off. Baffled border guards who would have shot their “comrades” a week earlier let the crowd through—and a barrier that had divided the world was soon being gleefully dismantled. West Germany’s chancellor, Helmut Kohl, was so unready for history that he was out of the country.

The destruction of the Iron Curtain on November 9th 1989 is still the most remarkable political event of most people’s lifetimes: it set free millions of individuals and it brought to an end a global conflict that threatened nuclear annihilation. For liberals in the West, it still stands as a reminder both of what has been won since and what is still worth fighting for.

Remember the Stasi, but don’t forget the fridges

Yet the past two decades have seen economic freedom advance further than political freedom. Talk 20 years ago of a peaceful new world order has disappeared. New divisions have emerged out of nationalism, religion or just “fear of the other”. Rather than making the case for democracy unassailable, plenty of countries, including, alas, a few of the old Warsaw Pact members, most of the Arab world and China, have been able to run shamelessly repressive authoritarian regimes. When Western leaders visit Moscow, Riyadh or Beijing, they merely mumble about human rights. The presumption has become that such regimes will endure.

By contrast, “globalisation”, that awkward term that covers the freer movement of goods, capital, people and ideas around the globe, has become the governing principle of commerce. That does not mean it is universally accepted ...

Oct 29, 2009

Privately held French big-box chain Auchan is growing fast in China, Russia, and elsewhere as it challenges Wal-Mart, Carrefour, and Tesco.

Quick, what's France's answer to Wal-Mart? Until now, it has been Paris-based Carrefour, the global No. 2 retail chain. But increasingly, another French retailer, Auchan, is giving both Carrefour (CARR.PA) and Wal-Mart (WMT) a run for their money.

Over the past decade, Auchan (pronounced oh-shon) has expanded rapidly into China, Russia, and Eastern Europe. Based near the northern French city of Lille, the privately held company is now the world's 14th-biggest retailer, with 1,200 stores in 12 countries and annual sales of $59 billion.

True, that's small change compared with Wal-Mart's annual sales of $405 billion. But by many measures, Auchan is outperforming its bigger rivals in key global markets. In China, it is opening an average of two new stores per month, luring middle-class shoppers away from Wal-Mart and Carrefour by providing wider aisles, better lighting, and a higher-quality product range, says Shaun Rein, managing director of the China Market Research Group in Shanghai.

Auchan now has 132 big-box hypermarkets in China, including 110 operating under the brand name RT Mart in a joint venture with a Taiwanese partner. That puts it neck-and-neck with Carrefour, but behind Wal-Mart, which has 146 stores and owns a stake in a joint venture that has another 104 outlets.

Attracting China's Middle Class

However, Rein says Wal-Mart's "everyday low price" strategy has backfired with Chinese shoppers, who often assume cheaper products are unsafe or counterfeit. And while Carrefour has a reputation for high quality, its stores have a "ruckus atmosphere," resembling Chinese street markets, which is a turnoff to middle-class shoppers, he says. "In China, people are trading up. Auchan is positioned better than Carrefour and Wal-Mart to be able to grab that."

Jonathan Gunz, a senior analyst with London-based retail consultancy IGD, says his group's surveys show that Auchan's Chinese stores are "proving popular, with many customers filling up large shopping trollies—a bonus, considering many retailers are struggling to increase relatively small basket size."

Auchan also is thriving in Russia, where it has built or acquired a total of 34 outlets since entering the country in 2002 and is now the top Western operator of big-box superstores. Carrefour, which opened its first two Russian stores this year, abruptly reversed course this month and announced it was pulling out of the country. Wal-Mart and British retail giant Tesco (TSCO.L), another big discounter, have no stores in Russia.

At the same time, Auchan is pushing into locales ranging from Ukraine, where it plans to open three new stores by the end of the year, to Dubai, where it signed a deal with a local partner in 2008 to develop outlets across the Persian Gulf. ...

Oct 07, 2009

NORWEGIANS live the best lives in the world, according to the UNDP's “Human development index” published on Monday October 5th. Rich western countries as usual score well in the UN's measure of health, education and wealth data for 2007. But other countries can claim notable improvement in the past two decades. Of the 116 nations for which there are data, Mozambique has improved the most, scoring almost 50% higher in the 2007 index than it did in 1990. Many other African countries have also seen increases in their quality of life. China has seen its score rise by 27% on the back of strong economic growth. Six nations have slipped backwards, as AIDS or an ailing economy has driven down life expectancy and wealth.

Jul 31, 2009

CHISINAU, Moldova — Moldova’s pro-Western opposition parties appear to have unseated Europe’s last governing Communist Party in repeat parliamentary elections that have become a test of whether this impoverished former Soviet republic will lean toward the West or Russia.

With most votes counted from Wednesday’s elections, the Communists seem to have lost the majority they held for eight years in Parliament, winning about 45 percent of the vote, the Central Elections Commission said.

A smattering of opposition parties, loosely united in their pledge to forge stronger ties with the European Union, have vowed to form a coalition, which would give them a majority of 53 seats in the 101-seat Parliament. But any coalition would be fragile, analysts said, and potentially hindered by a sizable Communist minority that is still likely to be led by Moldova’s departing president, Vladimir Voronin.

“It is difficult to predict how the future will play out,” said Oazu Nantoi, the deputy chairman of the Democratic Party. “But the first step has been taken: Voronin’s monopoly on power has been broken.” ...

...Moldova, with four million people, is Europe’s poorest country. Unemployment is high, and the country is heavily dependent on remittances from Moldovans working abroad. It lies between Ukraine and Romania, a European Union member with which it shares a common language and culture. Romania also provides a steady tug to the West, particularly for Moldova’s youth. ...

Jun 22, 2009

America's self-declared progressives see the U.S. future in Europe's welfare model. Across the Atlantic, meanwhile, voters en masse are dumping the political movement that gave them the nanny state. Hmmm.

Of late, the winning political formula in Europe is simple: Promise to ease heavy tax and regulatory burdens and shake up stagnant economies. The welfare system is seen as broken. France's Nicolas Sarkozy and Italy's Silvio Berlusconi took this path to power. In the largest economy, Germany, Chancellor Angela Merkel looks poised to defeat a divided left in September's elections.

Across the Continent, the left is in disarray. France's Socialist Party, which last won a Presidential election in the 1980s, refuses to move to the center -- and further sinks in the polls. Italy's leftist parties compromised themselves in a brief two-year stint in office, before Mr. Berlusconi swept them out in April of last year. The center-left ruling parties in Britain and Spain, which inherited economies revitalized by courageous politicians who implemented free-market ideas, are also in trouble.

Even in a recession so widely attributed to unfettered capitalism, socialists are unable to take advantage. Consider the results last week of elections for the European Parliament. Center-right parties gained in Germany, France, Italy, Belgium, Britain, the Netherlands, Portugal, Spain and across most of eastern Europe. Sweden, Denmark and Greece were exceptions. ...

May 29, 2009

Who, 20 years ago, would have thought that the Communist Party could come to this?

WHEN the tanks departed Beijing after the crackdown of June 1989, no one with an interest in China thought the matter ended. The Chinese Communist Party had won its battle for survival, but the war seemed unwinnable. All the more so after communism collapsed in Eastern Europe later that year, followed by the Soviet Union. Even China’s lunge for breakneck growth from 1992 looked set to accelerate forces the party might not control. As the party’s ideological and moral foundations crumbled, it was no longer clear what on earth it stood for.

China-watchers’ scenarios ran from party collapse to a democratising path. As late as 1998 Bill Clinton was able to tell his Chinese host, President Jiang Zemin, that suppressing dissent put China “on the wrong side of history”. Banyan was in the audience that day, his Flying Pigeon (state-made bicycle) outside. Mr Clinton’s words seemed self-evident. But with hindsight, much of where the West said China was going was wishful thinking. ...

Mar 23, 2009

TROLLHATTAN, Sweden — Saab Automobile may be just another crisis-ridden car company in an industry full of them. But just as the fortunes of Flint, Mich., are permanently entangled with General Motors, so it is impossible to find anyone in this city in southwest Sweden who is not somehow connected to Saab.

Which makes it all the more wrenching that the Swedish government has responded to Saab’s desperate financial situation by saying, essentially, tough luck. Or, as the enterprise minister, Maud Olofsson, put it recently, “The Swedish state is not prepared to own car factories.”

Such a view might seem jarring, coming as it does from a country with a reputation for a paternalistic view of workers and companies. The “Swedish model” for dealing with a banking crisis — nationalizing the banks, recapitalizing them and selling them — has been much debated lately in the United States, with free-market defenders warning of a slippery slope of Nordic socialism.

But Sweden has a right-leaning government, elected in 2006 after a long period of Social Democratic rule, that prefers market forces to state intervention and ownership. That fact has made the workers of Trollhattan wish the old socialist model were more in evidence. ...

Curious isn't? That just as the largest nation practicing Nordic socialism is moving away from it, our U. S. leaders seemed to have embraced it as the hope of the future. It just make me want to Saab ... I mean ... sob. :-)

Nov 25, 2008

Caracas, Venezuela; and Moscow - Russian President Dmitry Medvedev's visit this week with Venezuela's leftist leader Hugo Chávez is the first ever for a Kremlin leader to this oil-rich nation. And the meeting – part of a Latin America tour that includes stops in Brazil and Cuba – is kindling concerns that a resurgent Russia is aiming to revive its cold-war era presence in America's backyard.

The meeting is expected to coincide with joint naval exercises off Venezuela's coast, led by the Russian nuclear-powered warship, Peter the Great, and comes as the two powers announce that Russia will help Venezuela build a nuclear reactor.

Both nations insist their focus is economic, but geopolitics are also at play. ...

Sep 17, 2008

Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.

The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.

Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.

The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest lvel since January 2006.

Interbank money market rates climbed to 11 per cent, their highest since a mini-banking crisis in summer 2004.

Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.

Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market. ...

Sep 11, 2008

The UK, Germany and Spain will fall into recession in 2008, the European Commission has predicted.

Brussels said the three countries would see two negative quarters of economic growth in a row, which is the technical definition of a recession.

In its latest economic forecast, the commission also downgraded its outlook for eurozone growth again.

It said the 15-nation euro bloc would now grow by 1.3% this year, against previous projections of 1.7%.

Earlier this month, data showed the region's economy shrank by 0.2% between April and June - the bloc's first decline since its creation in 1999.

The contraction was driven by a slowdown in exports and consumer spending.

But high inflation in the region led policy makers at the European Central Bank to keep interest rates at 4.25% at its latest meeting, allowing no relief for the eurozone's slowing economies.

In its latest report, the commission believed that inflation was now likely to creep up to 3.6% in the eurozone - above its previous predictions of 3.2% and way above the government's target of 2%. ...

Aug 20, 2008

British attitudes towards the United States are governed by ignorance of the facts on key issues such as crime, health care and foreign policy, according to a new survey.

A poll of nearly 2,000 Britons by YouGov/PHI found that 70 per cent of respondents incorrectly said it was true that the US had done a worse job than the European Union in reducing carbon emissions since 2000. More than 50 per cent presumed that polygamy was legal in the US, when it is illegal in all 50 states.

The poll was commissioned by America In The World , an independent pressure group that launches on Monday and aims to improve understanding and appreciation of the US in Britain and around the world.

Tim Montgomerie, its director, said factual inaccuracies and mistaken assumptions have contributed to Britons and Europeans taking a hostile stance towards their most powerful ally, which often acted against national interests. ...

...The survey showed that a majority agreed with the false statement that since the Second World War the US had more often sided with non-Muslims when they had come into conflict with Muslims. In fact in 11 out of 12 major conflicts between Muslims and non-Muslims, Muslims and secular forces, or Arabs and non-Arabs, the US has sided with the former group. Those conflicts included Turkey and Greece, Bosnia and Yugoslavia, and and Kosovo and Yugoslavia.

Asked if it was true that "from 1973 to 1990 the United States sold Saddam Hussein more than a quarter of his weapons," 80 per cent of British respondents said yes. However the US sold just 0.46 per cent of Saddam's arsenal to him, compared to Russia's 57 per cent, France's 13 per cent and China's 12 per cent. ...

...Almost a third of Britons believe that "Americans who have not paid their hospitals fees or insurance premiums are not entitled to emergency medical care"; by law such treatment must be provided.

More than half the respondents believed that polygamy is legal in some US states, while it is illegal in all US states.

Most Britons were unaware of positive aspects of the US, such as the robust environmental movement or the social justice work of evangelical churches, he said.

Apart from US-bashing being a favourite topic around European dinner tables, it has serious affects on national policy. ...

Europeans knocked back 79 billion liters of alcohol in 2006, or 101.25 liters for every person. In the U.S. the figure was 98.7 liters per person, while in the Asia Pacific region, it was just 22.1, according to research consultancy International Wine and Spirits.

It's no surprise that Europe is home to the world's heaviest drinkers; from whiskey in Scotland to wine in France, the continent has some long and deeply embedded alcohol traditions. Nevertheless, our ranking of Europe's heaviest-drinking nations revealed some startling results.

Croatia, the Balkan nation on the Adriatic Sea, came in at No. 1, while Britain, where fears about binge drinking have prompted a flurry of new legislation, came in at only No. 15. France and Sweden didn't even rank in the top 20.

We graded each country based on alcohol consumption per capita, legal restrictions on drinking, diseases resulting from alcohol abuse, and whether drinking habits, such as binge drinking or drinking in public places, are especially risky.

Each country was assigned a rank on the basis of each data set; the results were then totaled to produce a final rank. ...

...But alcohol consumption takes a heavy toll. The tangible costs of drinking in the European Union, including health costs and loss of workforce productivity, were estimated at some 125 billion euros ($197.3 billion) in 2003, or 1.3% of gross domestic product, according to the study.

Nearly all the top 15 biggest drinking nations are in Central or Eastern Europe. Poverty and the harsh climate, particularly in Russia, play a part, as does the tradition of drinking. "Where it's extremely cold it's not uncommon for people to drink all day long," said Val Smith, president of International Wine and Spirits, which provided the data on per-capita alcohol consumption. ...